Is Southern California At Risk Of A Bubble
By Kurt Real Estate Nov 23, 2019
Everybody’s thinking it and most people are asking it…is a bubble coming? I can’t tell you how frequently I’ve recently been asked this question. Economists and now mortgage insurance companies alike are saying probably not. There’s only a slim chance home prices in Southern California will fall in the next two years. Arch MI found that the overall positive performance of businesses and a limited development of new homes will hold home prices firm. Of all the 100 major metropolitan areas evaluated, Orange County did have the highest risk and, even so, that is only a 4 percent chance that prices will decline in the next 2 years. So for those who say price adjustments are coming, compare that to the 28-year historical average of of 25 percent chance of falling home values.
In fact, Orange County’s home prices, up 12 percent in the last 2 years, only ranks 52nd highest out of the 100 studied. This tells us that, despite being targeted for “minimal” risk, it is likely home prices won’t be falling for some time. There’s still some room to grow compared to Los Angeles and Bay Area markets. Even if values were to drop, it would be nominal. On the flip side, economists are projecting another 4 percent increase over the next year.
If you still don’t buy it – if you’re someone that thinks we’re on the verge of the next big bubble and burst – let’s zoom out and take a look at this on a macroeconomic scale. Nationwide the risk of decline is only 5 percent. Consider the nationwide average of a 12.5 percent increase in appreciation over the last 2 years and you’ll see this is a very minimal risk, if that. The shortage of inventory across the board has kept the market tight and has led to further appreciation this year. Even recent hikes in interest rates and higher taxes haven’t slowed the market.
Simply put, housing markets aren’t likely to cool until the economy slows. So unless some unexpected event were to shock us all, it’s quite possible housing markets will continue to rise over the next few years.
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